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Devín banka: Supervision falling apart

Another bank is in crisis, and a few people are in a huff. Devin banka, the rock upon which Slovakia was supposed to found its recovery of debt owed to it by Russia, has turned into a reef that threatens to tear a large hole out of the state budget.The bank's near-collpase has been staved off by the intervention of the state to the tune of 2.5 billion crowns - a not inconsiderable sum when the budget deficit is under pressure and the likes of the IMF and OECD have been sounding the sirens for expenditure cuts before it is too late. But the government felt obliged to keep the bank floating and to protect the deposits of ordinary citizens caught in the near crash. The Deposit Protection Fund - used to cover accounts of clients in banks teetering over the edge of illiquidity - was running perilously low, forcing the government's hand. Why? Well, after another bank went down earlier in the year, the pay-outs were a little bit more than the Fund could handle.

Another bank is in crisis, and a few people are in a huff. Devin banka, the rock upon which Slovakia was supposed to found its recovery of debt owed to it by Russia, has turned into a reef that threatens to tear a large hole out of the state budget.

The bank's near-collpase has been staved off by the intervention of the state to the tune of 2.5 billion crowns - a not inconsiderable sum when the budget deficit is under pressure and the likes of the IMF and OECD have been sounding the sirens for expenditure cuts before it is too late. But the government felt obliged to keep the bank floating and to protect the deposits of ordinary citizens caught in the near crash. The Deposit Protection Fund - used to cover accounts of clients in banks teetering over the edge of illiquidity - was running perilously low, forcing the government's hand. Why? Well, after another bank went down earlier in the year, the pay-outs were a little bit more than the Fund could handle.

What else could the government do? That was the answer from Deputy Prime Minister for the Economy Ivan Mikloš. Finance Minister Brigita Schmögnerová said that sometimes you have to spend to not lose even more money. The central bank said that it had been kept informed of the state of the bank throughout negotiations between the Finance Ministry and Devin banka. Obviously it chose not to act on the information it received, and the bank went down the tubes.

The National Bank of Slovakia has found some allies at the state-owned Všeobecá úverová banka (VÚB), who have said that any criticism of the central bank over Devín banka and other similar cases was unfair. "They just don't have the tools to do anything more about it," said Frantisek Szikhart, VÚB's vice-president. But how many tools does a central bank need to oversee a banking sector? How many courses of action can a government take when faced with the dilemma of a bank that Mikloš himself said had in the past extended politically motivated loans and which is currently engaged in a court case with the Finance Ministry over its deblocking of Russian debt?

The answer to these questions lies in the fact that these questions are being asked at all. The situation with Devín banka should never have been allowed to arise. The government and the NBS are not naive, and neither lack intelligent, knowledgeable individuals who know full well which banks are getting themselves into stormy waters. The role of both is to steady the ship before it sinks. The NBS could have and should have acted sooner. The government, through consultation with the NBS, could have headed off the need for a loan and taken a place on the bank's board before it had to plough huge sums into Devín to prop it up, not afterwards.

Another lesson learned, but at the price of another lump of cash out of the state's bare coffers.

19. Jun 2000 at 0:00

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